ICICI Bank Ltd (IBN) 2017 Q2 法說會逐字稿

Ladies and gentlemen, good day and welcome to the ICICI Bank's Q2 FY 2017 Earning Conference Call. As a reminder, all participant lines will be in the listen-only mode. And there will be an opportunity for you to ask questions after the presentation concludes. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Ms. Chanda Kochhar, Managing Director and CEO at ICICI Bank. Thank you, and over to you, ma'am.

Thank you and good evening to all of you. I'll first make some brief opening remarks and then Kannan will take you through the details of the results. So just to start with I'll recap the Bank's strategic priorities for FY 2017. When in the previous analyst calls, we had spoken about the four-by-four agenda, basically around portfolio quality and around enhancing franchise. So to recap the agenda that we had announced were set on portfolio quality; four key factors that we would focus on; proactive monitoring of loan portfolios, improving the credit mix of the loan portfolio, reducing concentration risk and resolution of stress cases. On enhancing franchise, the four areas that we said we'd focus on is to sustain the robust funding profile, maintain our digital leadership and strong customer franchise, continue our focus on cost efficiency and lastly, focus on capital efficiency and unlock value in subsidiaries. So I'm happy to say that we have continued to focus on this agenda and that we have seen some good progress on this agenda. I'd like to highlight just four key areas of progress on this agenda.

The first is that during the second quarter of 2017, we saw the first IPO from the Indian insurance sector by the ICICI Prudential Life Insurance Company. So, as you are aware, the Bank holds 12.63% shareholding in the company in the IPO and this has resulted in gains of INR5,682 crores or INR56.82 billion during the quarter. ICICI Life is well positioned to participate in the growth of the insurance sector and the Bank still continues to hold 54.9% shareholding in ICICI Life. So I think this transaction demonstrates the significant value that ICICI Bank has created in our non-banking subsidiaries, and our non-banking subsidiaries continue to maintain a strong market position in their respective businesses and have reported robust profits in Q2 2017 as well.

The second good area of progress across our strategic agenda is that we continued to focus on reorienting our balance sheet towards lower risk and more granular portfolio. The retail portfolio grew 21% year-on-year basis. This growth in retail portfolio is in line with our strategic priorities. Even when we look at the Corporate segment, we continued to focus on lending to better rated clients, as well as continued to focus on reducing exposure in the sectors that were impacted by challenging operating environment. So if you look at our exposure to this five sectors of power, iron and steel, mining, cement and rigs, we had focused and started reducing this exposure from FY13 itself. So the exposure to these sectors for us was 16.2% on March 31, 2012. That has been brought down to 13.3% on March 31, 2016 and that has further been brought down to 11.9% on September 30, 2016. And continuing with our focus on increasing the proportion of retail, retail now constitutes 47.9% of our total loans compared to 44% last year on September 30.

The third area of progress across our strategic path is that we are making encouraging progress on resolution and exposure reduction in identified areas. So we have reported a drill-down list comprising the fund-based and the non-fund-based outstanding to companies, which were internally-rated below investment grade in key sectors such as power, iron and steel, mining, cement and rigs at the related promoter entities. And while the slide 33 to slide 35 of the presentation have an update on these exposures and Kannan will also explain the movement in detail, I'll just highlight the fact that the Bank saw a net reduction in exposure and rating upgrades to the extent of INR24.61 billion out of this portfolio during the six-month ended September 30, 2016. And not just that, based on the transactions announced and which are in the public domain, we expect a significant further reduction in this portfolio over the next six to nine months, subject to necessary approvals and the completion of these transactions. In fact, I must also add that a part of the planned repayment that was to be received in October as a part of these deals, has already been received. So we will continue to work on the balanced exposure and on working towards meaningful resolution in many of these cases.

The fourth key progress that I would like to state is the fact that we have further strengthened our balance sheet with making additional provisions of INR35.88 billion. This essentially comprises of three parts; provision of INR16.78 billion for standard loans, then taking the entire loss of INR3.95 billion on sale of NPAs, which were made during the six months ended September 30, 2016, which is otherwise permitted to be amortized as per by RBI guidelines that has been recognized upfront, and third, floating provision of INR15.15 billion. So I think working on unlocking the value from our subsidiaries, reorienting our balance sheet and making it more granular, working on very encouraging resolutions and continuing to strengthen our balance sheet, I think these have been the highlights of the quarter that has just gone by.

And given all this, I mean, if we take this forward to the operating highlights, I just want to state that we achieved a robust growth in our loan portfolio and we maintained a strong funding profile. So the overall domestic loan growth was 15.9% year-on-year, savings account deposits grew by 21.6% year-on-year, the CASA ratio was 45.7% as on September 30, 2016, and retail deposits were about 76% of our total deposits.

We also continue to make investments to strengthen our retail franchise. We have a network of 4,468 branches and 14,295 ATMs, the best-in-class digital and mobile platforms. During the quarter, we saw the launch of UPI and enabled UPI-based transactions on our mobile applications, that is iMobile and Pockets. And I'm very happy to say that we now have over 200,000 virtual payment addresses on UPI and we are also seeing an extensive number of transactions now taking place on UPI, though, of course, the value per transaction is small. We are also working on tie-ups with several merchants to enable UPI-based person to merchant transactions, which should give further fillip to UPI transactions.

Also, I must add that the Bank recently became the first Bank in India to successfully exchange and authenticate a remittance transaction message and also do an international trade document origination using the blockchain technology. So we will continue to make investments in order to strengthen our franchise further and to keep the technology leadership.

I believe that we're very well positioned to leverage on growth opportunities in the coming years. Given our strong deposit franchise, robust capital levels, our potential for unlocking value in our subsidiaries, we'll make investments to further strengthen our franchise, we will work towards revolution and reduction of stressed asset exposure.

I will now hand this over to Kannan.

Good evening to all of you. I'll now talk about our performance on growth, credit quality, P&L details, subsidiaries and then capital.

First on growth. Within the overall retail growth of 21%, the mortgage and auto loan portfolios grew by 19% and 14% on a year-on-year basis respectively. Growth in the business banking and rural lending segments was 26% and 30% on a year-on-year basis, respectively. We used earlier include the dealer funding in business banking loans. From this quarter, we have reported dealer funding as part of other retail loans. Commercial vehicle and equipment loans grew by 17% on a year-on-year basis. The unsecured credit card and personal loan portfolio grew by 40% on a year-on-year basis to INR179.66 billion and was about 4% of the overall loan book as of September 30, 2016. The Bank continues to grow the unsecured credit card and personal loan portfolio, primarily driven by a focus on cross sell.

Moving on to the Corporate portfolio, the growth in the domestic corporate portfolio was 8.4% year-on-year as of September 30, 2016 compared to 11.2% year-on-year as of June 30, 2016. The Bank has been focusing on reducing exposure to the key sectors and borrowers that are impacted by challenging operating environment. So if you exclude the NPAs, restructured loans and loans to companies included in the drill-down exposure list, growth in the domestic corporate portfolio was significantly higher. The SME portfolio grew by 12% on a year-on-year basis and currently constitutes 4.3% of the total loans. In rupee terms, the net advances of the overseas branches decreased by 4% on a year-on-year basis. In US dollar terms, the net advances of overseas branches decreased by 5.5% year-on-year as of September 30, 2016.

Moving on to the funding side, on a period-end basis, we saw an addition of INR86.84 billion to savings account deposits and INR52.24 billion to the current account deposits during the quarter. Current and savings account deposits grew by 18.3% on a year-on-year basis.

The Bank continued to maintain healthy CASA ratios on a period-end basis, as well as on a daily average basis. On a daily average basis, the CASA ratio was 41.5% in Q2 of 2017. Total deposits grew by 16.8% on a year-on-year basis to INR4.49 trillion as of September 30, 2016.

Now moving on to the credit quality, during the second quarter, the gross additions to NPAs were INR80.29 billion compared to INR82.49 billion in the preceding quarter. The gross additions to NPAs in the second quarter included slippages from restructured loans of INR12.31 billion and slippages out of the loans to companies internally rated below investment grade in key sectors of INR45.55 billion.

The retail portfolio had gross NPA additions of INR6.4 billion and recoveries and upgrades of INR4.5 billion during the second quarter, which is in line with the normal business trends. About 80% of the additions to NPAs for the wholesale and SME businesses were on account of slippages relating to companies internally rated below investment grade in key sectors, restructured portfolio and accounts that were non-performing as of June 30, 2016.

During the quarter, aggregate deletion from NPA due to recoveries and upgrades were INR8 billion. The Bank sold gross NPAs amounting to INR17.87 billion during the quarter. The net NPAs sold to ARCs amounted to INR8.82 billion.

The Bank's net non-performing asset ratio was 3.21% as of September 30, 2016 compared to 3.01% as of June 30, 2016. The gross non-performing asset ratio was 6.12% as of September 30, 2016, compared to 5.28% as of June 30, 2016.

The net restructured loans reduced to INR63.36 billion as of September 30, 2016, from INR72.41 billion as of June 2016. The aggregate net NPAs and net restructured loans were INR228.19 billion as of September 30, 2016 compared to INR225.49 billion as of June 30, 2016.

While announcing our results for the quarter ended March 31, 2016, we had stated that there were continued uncertainties in respect of certain sectors due to weak global economic environment, sharp downturn in the commodity cycle, gradual nature of the domestic economic recovery and high leverage. The key sectors identified in this context were power, iron and steel, mining, cement and rigs. The Bank had reported its exposure, comprising both fund based limits and non-fund based outstanding as of March 31, 2016 and June 30, 2016 to companies in these sectors that were internally rated below investment grade across domestic, corporate, SME, as well as international branches, and to promoter entities internally rated below the investment grade, where the underlying partly related to these sectors.

On slide 35 of our presentation, we have provided the movement in these exposures between June 30 and September 30 of 2016. The aggregate fund-based limits and non-fund based outstanding to companies that were internally rated below investment grade in these sectors and promoter entities decreased from INR387.23 billion as of June 30 2016, to INR324.9 billion as of September 30, 2016, reflecting the following two things. One is there is a net reduction in exposure of INR16.77 billion. And two, loans classified as non-performing during the quarter were INR45.55 billion. Please refer to slide 35, as I said, for further details.

Based on the transactions announced and in the public domain, we expect a significant further reduction in the above exposure as of September 30, 2016 over the next six to nine months, subject to necessary approvals and completion of the transactions. A part of the planned repayment has been received in October 2016. The Bank continues to work on the balance exposures. However, it may take time for these resolutions, given the challenges in the operating and recovery environment. Our focus will be on maximizing the Bank's economic recovery and finding optimal solutions.

The exposure to companies internally rated below investment grade in key sectors and promoted entities of INR324.9 billion, includes non-fund-based outstanding in respect of accounts included in this portfolio, where the fund based outstanding has been classified as non-performing. Apart from this, the non-fund-based outstanding to borrowers classified as non-performing were INR33 billion as of September 30 2016, as you can see in Slide 35 of the presentation.

As of September 30, 2016, the Bank had outstanding loans of INR29 billion, where 36 debt restructuring or SDR was implemented, primarily comprising loans either already classified as non-performing, or restructured, or to companies that were internally rated below investment grade in key sectors, that is power, iron and steel, mining, cement and rigs. The outstanding portfolio of performing loans for which refinancing under the 5/25 scheme has been implemented, was INR27 billion as of September 30, 2016, primarily comprising loans to companies internally rated below investment grade in the key sectors mentioned above.

Coming to the provisions, as mentioned earlier, in the second quarter, the Bank has strengthened the balance sheet by making additional provisions of INR35.88 billion. The additional provisions comprise the following. One, we have made provisions of INR16.78 billion for standard loans. Two, the entire loss of INR3.95 billion on sale of NPAs during the six months ended September 30, 2016, which is permitted to be amortized as per RBI guidelines recognized upfront. And three, the Bank has made floating provisions of INR15.15 billion as permitted by RBI guidelines. This floating provision has been deducted from the gross non-performing loans while computing the net non-performing loans.

Other provisions were INR34.95 billion in Q2 of 2017, compared to INR25.15 billion in the preceding quarter and INR9.42 billion in the corresponding quarter last year. For the quarter, there was a draw-down of INR6.8 billion from the collective contingency and related reserve. The provisioning coverage ratio on non-performing loans, including cumulative technical and prudential write-off and floating provisions made during the quarter was 59.6%. We expect the NPA additions to remain elevated for the next two quarters.

Moving on to P&L details. Net interest income was INR52.53 billion in Q2 of 2017. The net interest margin was at 3.13% in the second quarter compared to 3.16% in the previous quarter. The domestic NIM was at 3.41% in Q2 of 2017, compared to 3.45% in the preceding quarter. International margins were at 1.65% in the second quarter, at the same level last we saw in the previous quarter. There was interest on income tax refund of INR1.11 billion in the second quarter, unlike in the preceding quarter. This had a positive impact of about 7 basis points on the net interest margin for the quarter. Going forward, the yield on advances would continue to be impacted by non-approval of income on non-performing assets and implementation of resolution plans for stressed borrowers.

Moving on to non-interest income, the total non-interest income was INR91.2 billion in the second quarter of 2017, compared to INR30.07 billion in the second quarter of 2016. Non-interest income for the quarter included gains of INR56.82 billion relating to sale of shares in ICICI Life in the IPO. Excluding these gains, non-interest income grew by 14.3% on a year-on-year basis. Within that the fee income was INR23.56 billion. Retail fees grew by 10% on a year-on-year basis and constituted about 68% of the overall fees in the second quarter of 2017.

Treasury recorded a profit of INR7.3 billion compared to INR2.22 billion in the corresponding quarter last year. The yield on the 10 year government securities eased during the second quarter. The other income within the non-interest income was INR3.52 billion. The dividend from subsidiaries was INR3.27 billion. The Bank had no exchange rate gains relating to overseas operations in the second quarter, compared to the gains of INR1.9 billion in the corresponding quarter last year.

Moving on to the operating expenses, the Bank's cost to income ratio was at 26% in the second quarter of 2017 and 31% in the first half of 2017. Excluding the gain on sale of shares of ICICI Life, the cost to income ratio would have been 43% and 41.1% respectively in the second quarter of 2017 and the first half of 2017, respectively.

Operating expenses increased by 20.5% on a year-on-year basis in the second quarter of 2017. The increase was mainly due to a 28.3% increase in employee expenses, which among other factors includes the impact of decline in yields on provisions for retirement benefits in the second quarter. The Bank has added 6,379 employees in the first half of 2017 and we had 80,475 employees as of September 30, 2016. For the first half of 2017, operating expenses increased by 15.3% on a year-on-year basis, which is broadly in line with our expectations for the full year as well.

Non-employee expenses increased by 15.5% on a year-on-year basis in the second quarter of 2017 and 15.6% year-on-year in the first half of 2017. We will continue to focus on cost efficiency, while investing in the franchise as required.

The Bank's standalone profit before provisions and tax was INR106.36 billion in the second quarter of 2017 compared to INR51.58 billion in the corresponding quarter last year and INR52.15 billion in the preceding quarter.

I have already discussed the provisions for the quarter. So after taking into account the additional provisions made during the quarter, the Bank's standalone profit before tax was INR35.53 billion in the second quarter of 2017 compared to INR27 billion in the preceding quarter and INR42.16 billion in the corresponding quarter last year. The Bank's standalone profit after tax was INR31.02 billion in the second quarter of 2017, compared to INR22.32 billion in the preceding quarter and INR30.30 billion in the corresponding quarter last year.

Now moving on to the subsidiaries, the profit after tax for ICICI Life for the second quarter of 2017 was INR4.19 billion, compared to INR4.15 billion in Q2 of 2016. The new business margin on actual cost, based on Indian Embedded Value our IEV methodology was at 9.4% in the first half of 2017 compared to 8% in financial year 2016 and 5.7% in financial year 2015. This improvement in margins was driven by increase in proportion of protection business from 1.6% levels in 2015 and 2.7% in 2016 fiscal, to 4.4% in the first half of the current financial year. The company continues to retain its market leadership among the private players, with a market share of about 12.4% in the first half of 2017. The embedded value based on the Indian Embedded Value methodology was INR148.38 billion as of September 30, 2016, compared to INR139.39 billion as of March 31, 2016.

Moving on to ICICI General, the profit after tax increased by 19.6% from INR1.43 billion in the second quarter of last year to INR1.71 billion in the second quarter of this year. The profit before tax grew by 22.6% on a year-on-year basis. The gross written premium of ICICI General grew by 38.9% on a year-on-year basis to INR57.07 billion in the first half of 2017 compared to about 29.4% year-on-year growth for the industry. The company continues to retain its market leadership among the private players and has a market share of about 9.2% in the first half of 2017.

Moving to ICICI AMC, the profit after tax increased by 54.8% on year-on-year basis from INR0.84 billion in Q2 of 2016 to INR1.3 billion in the second quarter of current financial year. With average assets under management of about INR2.2 trillion for the quarter, ICICI AMC continues to be the largest mutual fund in India.

The profit after tax of ICICI Securities was at INR0.99 billion in the second quarter of 2017, compared to INR0.6 billion in Q2 of 2016. The profit after tax of ICICI Securities' primary dealership was INR1.71 billion in the second quarter of current fiscal compared to INR0.88 billion in the corresponding quarter last year.

Let me now move on to the performance of our overseas banking subsidiaries. The Bank's totally equity investment in ICICI Bank UK and ICICI Bank Canada has reduced from 11% of the Bank's net worth at March 31, 2010, to 4.4% as of September 30, 2016. ICICI Bank Canada's total assets were CAD6.69 billion as of September 30, 2016 and loans and advances were CAD5.74 billion as of September 30, 2016. ICICI Bank Canada reported a net loss of CAD5.4 million in Q2 of 2017 compared to a net profit of CAD6.6 million in the second quarter of 2016, on account of higher provisions on existing impaired loans, primarily India linked loans. The capital adequacy ratio of ICICI Bank Canada was 24.9% as of September 30, 2016.

Moving on to ICICI Bank UK, the total assets were $3.63 billion as of September 30, 2016. Loans and advances were $2.51 billion as of September 30, 2016. The sequential decrease in loans and advances of about $175 million was on account of lower disbursements in the second quarter of 2017, given the uncertainties in the operating environment and limited lending opportunities. The profit after tax in the Q2 of current fiscal was $2.3 million compared to $0.6 million in Q2 of 2016. The capital adequacy ratio was 18.7% as of September 30, 2016. The consolidated profit after tax was INR29.79 billion in the second quarter of 2017 compared to INR34.19 billion in the corresponding quarter last year and INR25.16 billion in previous quarter.

Now moving on to capital, the Bank had a Tier-1 capital adequacy ratio of 13.26% and a total standalone capital adequacy ratio of 16.67%, including profits for the first half of 2017. The Bank's consolidated Tier-1 capital adequacy ratio and the total consolidated capital adequacy ratio including profits for H1 of 2017 were 13.41% and 16.75% respectively. The capital ratios are significantly higher than the regulatory requirements. The Bank's pre-provisioning earnings, strong capital position and value created in the subsidiaries give the Bank the ability to absorb the impact of a challenging environment, while driving the growth in identified areas of opportunity.

So to sum up, during the second quarter of fiscal 2017, we have, one, demonstrated value unlocking with the completion of IPO of ICICI Life. Two, focused on resolution and recovery in the corporate segment and seen progress in deleveraging by some borrowers. Three, further strengthened our balance sheet with additional provisions. Four, achieved continued healthy loan growth, driven by the retail portfolio and maintained focus on incremental portfolio quality. Five, sustained our robust funding profile. And six, continued to maintain healthy capital adequacy ratios.

We'll now be happy to take your questions. Thank you.

(Operator Instructions) Mahrukh Adajania, IDFC.

Just wanted to know how may accounts, like in number of accounts, would have slipped from the watch list?

We don't disclose that Mahrukh. We have been asked questions on the past how many cases are there in the watch list, but such kind of granular number of cases list, we don't have. As we have said, we'll give the amounts and this disclosure will continue going forward as well.

And your slippage outside the watch list, in the corporates, that is non-retail, non-watch list, non-restructured, that slippage still remains quite high, right, it was [17] and it's probably [15] now. So how long would this continue, as in what would be the sectors that are slipping outside of the watch list and do we continue to build a [14/15 billion] slippage from outside the watch list in the quarters ahead, how does it go?

So we have always said that the bulk of that NPL which is slipping will come from this drill-down list, as well as the restructured portfolio. So this quarter also, if you look at the numbers, 80% of the NPL slippages came from this subset of our portfolio. So the balance slippages, there is no real pattern really of a particular sector. So that would be really a function of an operating environment. We'll continue to watch those slippages as well going forward.

And whatever, you said you received some payments already from some -- from the deal in October. Would that already been reflected in your watch list?

No, it is not reflected, because the drill-down list numbers have been put out as of September 30. Going forward, that'll get reflected in the next quarter disclosures.

Okay, because the promoter entity figure has come down and that does not still include any repayment, is it?

Yeah as of that date, whatever payment had been received prior to September 30 is indeed reflected in that. But since we mentioned October payment, I'm saying that that will come only in the future?

But we just received some payments up to September, those are included, but we have also received some payments in October, those are not included.

And just two more small questions. Firstly that -- so obviously there are pending deals, as you said in the press meet as well, which will help reduce the watch list even further. Would there be any size to the reduction? Would it be fair to put it at INR60 billion to INR70 billion or any such rough number?

See, we have not disclosed a number Mahrukh, but we have very clearly said that there would be a significant reduction in the next six to nine months as and when then these deals fully consummate. So we go by that statement saying that there'll be significant reduction. We have not put a number to it, but we have said it's a significant reduction going forward.

And was there any increase in international NPLs or just higher provisions [are] already impaired?

So you are talking about ICICI Canada, where, as I mentioned, it is an additional provision required of the existing impaired assets, which were India-linked.

And, UK, there is no increase in impaired as such, sequentially?

Yes, it is stable.

Vishal Goyal, UBS Securities.

My question actually is about this drill-down, so we've seen this INR16.77 billion reduction in exposure. So can you just share some color on -- I mean I think it's maybe coming from power, but more than a sector, I think what is the nature of this upgrade?

These are actually upgradings about [INR4.7 billion].

So, basically you've got money back, is that what it means, like it is complete repayment?

No, if you see the data that we have given for the first half of the year, there is about INR20-odd billion of reduction in exposure, which is repayment and about [INR4 billion] of upgrades, where the company based -- where the companies, based on their performance or any events that may have taken place in the company would have gotten upgraded. And that includes complete, as well as part repayment. The first part, which you mentioned, INR16.77 billion, that includes complete, as well as part payments in respect of some assets.

And this standard loan provision of INR16.78 billion, now what is the nature of that? How is it different from the contingent provision we made earlier?

This is additional provisions that we have done during the quarter for some of the standard loans. As you know that there are some cases where SDR has been implemented or invoked by banks and some other restructured loans. So to strengthen the provisioning against that on a prudent basis we have made additional provisions for some of these cases.

But you're calling it standard. I mean you're not trying to call it contingent now. So how is it different, because there is a draw-down in contingent and then we are creating additional provisions in a separate category?

If you look at the provision which we have made, for example, on the SDR loans, typically there is a requirement which is there from RBI to make a 15% provision on SDR loans. Of course, that is only for SDR loans which are already implemented, the scheme is already implemented and there is a time period given by RBI to do it in over the 18 month standstill period. So that is what we have kind of tried to make on these.

So you up-fronted that effectively?

Yes, because RBI gives that -- RBI requires that to be done over a period of 18 months. That is the option which was given.

And I think one last question, which I think Mahrukh also tried asking about the significant reduction. I mean significant can be anything between 40% to 80%, but the point we're trying to get is, like what is the size of pipeline you are working with, let's say, and I'm not seeing 100% will be competed in next six months, nine months, but if you can give some sense on that. The entire drill-down is being worked up on for like next six, nine months or --

In terms of trying to resolve and find solutions, the entire drill-down list is being worked upon. I wanted to assure you. But what we meant by saying significant reduction is on the basis of things which have progressed to a decent extent and those are the deals which are in the public domain already. We thought that we should -- since there is a significant progress in those cases, we thought we could give a sense saying that that itself will lead to a significant reduction. But our endeavor is to find solutions for all the assets which are in the drill-down list. Like last two quarters, we have really resisted talking about a particular number given the operating environment and given the time it takes for these things to materialize. So any indication of a particular percentage we do not think is appropriate at this juncture, so we wanted to tell you that yes we are working very hard on each of those assets and significant progress we have seen in a few cases, which some of them already in the public domain and based on that there could be a significant reduction in the next six to nine months. Those are the only statements we are able to make now. We would still like to stay away from making a particular percentage of slippages on that list.

Amit Premchandani, UTI Mutual Fund.

Can you just explain what all you have adjusted in the net NPL number, the contingent provision, standard asset provisions and floating provisions, what are all adjusted to arrive at this net NPL number?

In the NPL, we have adjusted for only the floating provisions we had made during the quarter of INR15.15 billion. Other than that we have only the normal NPL provisions, which are deducted in computing the net NPL ratio. So any of the other provisions we talked about, standard asset provisions or the CCRR and the other provisions, they are not deducted in computing the net NPL ratio.

What is the outstanding contingent provision now?

About INR20 billion. The collective contingency netted reserve is about INR20 billion.

And sir, there has been a significant reduction in power and rigs and promoter holding. Can you help us understand which of the sectors contributed to what slippage and which contributed to just upgrades?

Given the size of the slippage which is there and the reduction that is there, you would be able to kind of make out that indeed we have seen slippage in the power and the rig sector.

And sir, this current run rate of almost INR80 billion of slippages, do you think this is more or less the peak we will see gradual reduction or this kind of run rate will continue more or less?

I think Kannan mentioned that we expect that for the next two quarters the NPL additions could remain elevated and thereafter, of course, we would see some reduction of this.

Nilesh Parikh, Edelweiss Securities.

So, again, the question on asset quality. Now, you, to Mahrukh's question regarding the outside of watch list, I just wanted to understand, now if we looked at two quarters back before the AQR, or the last fiscal, this run rate used to be much lower and now it's been sticky in that range of about INR20 billion to INR25 billion, including the retail part. So just wanted to understand, over the next couple of quarters, can we expect or what are we looking at for the reduction to take place in this?

One is that on the retail business, clearly the numbers have been pretty stable in terms of the delinquencies and the credit costs and absolutely in line with our expectation. So those numbers, we can definitely keep aside. Indeed from -- unrelated to the restructure or existing NPAs or the select sectors, the drill-down list, the additions were about INR17 billion in the first quarter and about INR15 billion in the current quarter. As we had mentioned in the first quarter also that these slippages are kind of spread across a few sectors, and that is the same that we have seen this quarter as well. So I think our estimate would be that given that we do expect for the next couple of quarters the NPA additions to be elevated, I think that is what one can assume in terms of the trend that we see on the non-drill down, non-restructured, non-NPA related addition to NPAs.

But, Rakesh, last time you all mentioned that 30% of the outside watch list -- sorry the drill-down list slippages could actually get upgraded over the next couple of quarters, but we've refraining from making that -- some of the statements. So can we assume that this is now a steady state for us for the next couple of quarters here, or it may be slightly longer?

Indeed, we had mentioned that we would expect about 30% to get upgraded during the financial year. We are working on that and we are hopeful of that kind of happening during the year, but I think it's very difficult on the corporate business to say -- talk about any kind of a run rate, because depending on the size of the exposure, the numbers can be high or low, so that's why we kind of refrain from giving any specific estimate on the size of the addition. But fair to say that over the next couple of quarters, the level of NPA additions would remain elevated and that would be true for the portfolio, outside of restructured or NPA, existing-NPA related or from the drill-down list.

The other question is on fees, right. So it's been like many years now that we've kind of seen that line item being pretty soft. So we're obviously seeing underlying trends in terms of retail improving, but the overall seems to be still sticky at that single-digit number. So when do we expect that to break out and if you can just talk about some trends underlying this?

I think as we had said at the end of the first quarter, that through the year, we would expect some improvement in that trend on the fee income growth and we have seen some improvement in this quarter, but clearly there is a long way to go in terms of getting that growth into double-digits and higher. So, on the retail side, some of the businesses are doing pretty well, some businesses, like remittances, overall, I think most banks have faced some kind of a reduction or a lower growth on that part of the business. But other things like third-party distribution, credit cards, those line items are growing well. So we continue to expect that on the retail fee income itself, into the second half of the year, on a year-on-year basis, the growth numbers would improve from the current level, which is there. On the corporate side, given the reorientation of the business that we have done, a lot more focused on higher-rated business, a lot more of fund-based businesses, so the amount of lending linked fees, especially has been coming off. Again, I think, from a run rate basis, a lot of the decline has already kind of happened there, but I would still say that in the current financial year, it still will be in a phase where it is kind of getting rebuilt. But given the growth on the retail that we expect into the second half of the year, we are quite hopeful to see better trends on the fee income. But I do agree with you that it has been quite some time in terms of the sluggish growth that we have seen on the overall fee income. Of course, the proportion of retail fees has been increasing during this period. So now we are running at more like 67%, 68% of retail fee income of the total fees.

Manish Ostwal, Nirmal Bang.

I have a question on the credit cost side. In the first half, you have made additional provision also in the regular provision in the P&L. So given the stress formation run rate for next couple of quarters, what kind of credit cost we can see in the P&L?

I think at the beginning of the year we had said that our focus in the current year will be on the resolution of assets, both NPAs, restructured loans, as well as the drill-down list, and we expect the NPA additions and the credit cost to remain elevated. We have not given any more precise estimates on NPA addition or credit cost, given that there are a number of variables in terms of resolution of the assets or the size of the exposures which are there, the individual exposures. So we can only say that the credit cost would remain elevated for the current financial year.

Secondly one small question, it may be repetitive. There is an increase in the employee cost quarter to quarter. Could you explain the reason for the same?

You are comparing it with the June quarter?

Right, right.

So, vis-a-vis June quarter, one of the key impacts would have been that the yield on government securities had come down during the quarter, which reflected, of course, partly in our treasury income. And of course there is also an impact on the retirals, the pension and the -- in the gratuity fund, on the valuation there is an impact, which would have come in. So, as Kannan mentioned, overall for the year, I think if you look at the first half trend of the operating expenses growth that would give a better reflection for the full year, because there is some volatility quarter-on-quarter which is there.

Vikesh Mehta, Religare Capital.

Hi. Kannan this is Parag here from Religare. When you said that contingent provision is now down to INR20 billion, you are not including INR15 billion which you have created and now accounting in the NPA provisions, right?

Yes, just to be clear, we had made this collective contingency and rated reserve in the March quarter and that was the question to which we were responding that given the utilization that we have done in the June and the September quarters, the amount outstanding of CCRR would be about INR20 billion. In addition to that, in the balance sheet, we hold now floating provision of about INR15 billion that we have made during the current quarter and about INR16 billion or so of additional provision that we have made against standard loans. This, of course, is in addition to the general provision that we hold against standard loans, which is as per that 0.4% or other 65% is that RBI requires us to make. So these are the provisions that we hold on the balance sheet.

Yes, that's right, but INR15 billion you are already accounting as a part of your coverage, right?

So the floating provisions, RBI guidelines basically require banks to consider the floating provision in two manners. So, either you can deduct it from the gross NPLs to arrive at the net NPL and consider it in the coverage ratio, or you can count it as Tier 2 capital. So, we have chosen to reduce it from the gross NPLs and taken it in the coverage ratio.

And one more thing. I mean, do we do loan against property, because we don't disclose that line item separately anywhere, I mean, most of our competition do disclose that. So --

We also do loan against property. We've been quite careful in terms of the growth in that particular line item. So that accounts for about 20% of our home loan portfolio, mortgages book. So that number has been hovering -- that percentage has been hovering around that level. So we keep watching that number and at around 20%, we are quite comfortable with that.

So 20%, has remained by and large same in last in year or so?

Broadly yes. Over the last several quarters, it has been at 20% levels.

(Operator Instructions) [C Shankar], Prabhudas Lilladher.

I've got a couple of questions. The first question was -- see, significant amount of the slippages that we are seeing is outside the restructured book. So, of the total watch list that you have given, how much is actually present in the restructured book?

The drill-down list that we have given, that excludes the existing restructured book and that's how we had given the drill-down list when we disclosed in the March quarter. So it is in addition to the existing NPAs and restructured loans that at March 31, 2016, we disclosed the drill-down list of exposures, which is basically an aggregation of our exposures, which are internally rated BB or below to these identified sectors.

So, does it mean that the watch list that you gave is already present in SMA 1 and SMA 2?

It could be possibly be in any of the categories. It could be SMA 0, SMA 1, SMA 2 or it could be current also, because that is not the criteria that has been used, but indeed some of those loans will be in some of these special mentioned buckets.

Can I take one more question, please? In your entire SMA 1 and SMA 2, if I slip off SMA 0, can we get a color on what's your SMA 1 and SMA 2 as at June and what is it looking like right now in September?

We do not make any separate quarterly disclosure on SMA 1, SMA 2. I don't think that we have talked about those numbers separately on a quarter-on-quarter basis.

But at least you can give us a color, if you can't disclose the exact number, you can at least give us an indication of how it is moving?

So, because what happens is that given the corporate portfolio which is there, some of these exposures are lumpy. So, depending on at which date you're looking at it, exposure could be in any of the bucket. So the movement also at times becomes volatile. Overall, I think it will be fair to assume that given the current environment which is there, again, the level of SMA 1, SMA 2 assets for us also would be on the higher side than the normalized level. We have not given any trends on that.

[Dheeraj Ravi], Samba Financial.

Sir, one question I wanted to ask is, basically in our press release to the stock exchanges we indicate one gross NPA to the total assets number, which is kind of variance to what we show in the presentation. So what we include in the press release which we give to BSE? For example, in the current quarter financials, we as on slide 35 we get a gross NPA of -- closing NPA of INR32,548 crores. Same if I look into press release -- the [result SMA 2] base is INR32,178.6 crores. So why we get this? And the percentages also significantly vary.

Yes, the reason for the percentages being different is, in the stock exchange format the numbers reported are non-performing loan as a percentage of advances, whereas what we do in terms of our own disclosures and in the presentation is the non-performing assets as a percentage of customer assets. So we believe that, that is more appropriate in terms of reporting, that is the customer assets basis, that gives the overall picture of the NPLs better, is our belief.

So what is added besides the loan in this customer assets, is it investment or something?

(Multiple speakers) That's correct. Credit substitutes would be there, like bonds or some other instruments and if they have become NPL also they have been included in the disclosures we make in our presentation.

The reason why I'm asking is that if you were to compare across the Bank, actually that the stock exchange disclosure becomes something which is standard. So I appreciate you are presenting it in better way and that's a good way. But the point is at times it becomes very difficult when you have to compare amongst all the banks.

No, I understand. That's why we have given -- both the numbers are available. That is exactly why we have given both the numbers and I do believe that a couple of other banks also give on the basis of net customer assets. That also you could compare.

And the second question is basically when we say return of account in the kind of it -- so what is the kind of -- is it a technical write-off which is what have been excluded in the stock exchange gross NPA? What would be amount? Is it INR7,000 cores, INR8,000 crores, because that's what my calculation is showing? So if you can disclose that and if that's something which you don't want to share, that's perfectly fine.

Just to tell you that will basically be all the write-offs that we do. So it will include technical and all other write-offs. So we don't disclose that. But it will be all the write-offs. It's more of just a statement to say it is net of write-offs.

And last question, how do we treat the recovery from this write-off, because typically it's shown as other income in the public sector bank, not in private sector bank, but what is the kind of quantum of recovery, because that is -- you do mention in the note that so and so cost element include a -- the income element included, but can you share some number about what is the recovery from this technical write-off?

We have not disclosed.

Because in Basel II, somewhere it comes, in you Basel disclosure.

In our case we don't show it as a separate income line item in other income. It is a part of our overall provision and write-off line item itself. So, in terms of -- more recently, as you know, the level of recoveries overall have been pretty low for banks including for us. So it's not a very high number, but yes we will look at going forward if it would disclose that separately. But because it's an overall part of our provision and write-offs aggregate number and not a part of miscellaneous other income that's why it's kind of not disclosed separately by us.

Adarsh P, Nomura.

Just a couple of questions. One on margins. You indicated further weakness, and just go back to March end quarter guidance, you had indicated a 20 bp fall from 4Q levels, which were already there or probably lower. So just in the context of, one, obviously the NPA formation, and two, the scenario where we are in terms of competition from bonds, maybe restructuring leading to lower yields in the -- when you transfer loans to better rated corporates, any revision in guidance that you would want to give now or how should we look at that?

I think as Kannan mentioned, the fact that the yield on advances would have some impact of the non-accrual of income on the non-performing assets or as we kind of work on resolving some assets, where the yields could go down from the current level, so that is something which will be there. Of course, we are kind of trying to ensure that we are able to offset that through a decline in the funding cost. So there has been opportunities to reduce our funding cost which is there. And of course, in the last quarter, we also realized cash from the sale of shares of ICICI Prudential Life, that will also add overall to the free float for the Bank. So we have not given any separate guidance on NIM, or a change from what we talked about at the start of the year. So the yield on advances would definitely be impacted by non-accrual of income, but there could be some offset, which could come from the funding cost and other elements. We'll see how it kind of progresses in the second half of the year.

And when you talk about the impact of resolutions on margins, is it like only the refinancing part that one loan is moving from a stress corporate to a better rated corporate that there is a yield reduction, or even on the part where you will take a write-off on the rest of the parts, you will be working with lower interest rates, like what --?

So it is a mix of that. So it would either be when a loan is moving to a better rated client and there is reduction in the yield which would happen. Also in cases, for example, where SDR has been implemented and the accounts are still standard, but there also there would be an income impact, which would come in, because we don't accrue income on the SDR cases. So there could be some of these impacts, which are overall a part of the work that we are doing towards resolution.

The second question is on your drill-down part of mining book. Just want to understand, most of us are aware there are two large accounts sitting there, still not dropped to NPA. So just wanted to understand the status and your expect -- because it seems from the outside that these are pretty -- these exposures will kind of require very large write-offs. It still remains the standard, so just wanted to understand, any movement there or what's happening on those two assets.

Yeah, without talking about specific names, I just wanted to tell you, yes, those assets are indeed part of that drill-down list and those assets we are -- as we have articulated earlier, there are recources available to us, just beyond the mine itself and we will take all steps to get maximum economic recovery to the Bank as possible. And as we can see in the recent past, the coal prices have also gone up. So the solution will be worked out in those cases and the solution will be a combination of keeping the asset running, hoping for the coal price to increase on one side, but at the same time, relying on the group -- recourses available to us and see how best we can get the recovery for the Bank. So work is on, on those assets you mentioned.

And do you have recourse on both the groups or just on one of the --?

I didn't want to get too specific beyond that. It's not correct for getting into specific details of assets, it is not really a correct thing to do. But as I mentioned, I'll just repeat saying that the group recources are indeed available and how to get that is what we will continue to work on that.

Rohan Mandora, Equirus Securities.

Sir, I had a query with respect to the slippages which are happening from the non-watch list account. So you had mentioned that close to 30% of that may see an upgrade. But with respect to the remaining 70%, what is the output like? How do we expect the upgrades or recoveries, or what kind of a loss on default is your estimate on that, sir? Just wanted to get a sense on that.

These are very recent addition to NPAs. I think the two or three cases where there was much more clarity in terms of the progress that we are making, on that basis we have talked about those accounts getting deleted from NPA in the coming quarters. I think in terms of recovery, in general, either from the NPAs that have slipped from restructured or from the drill-down list or from outside of both these lists, the recoveries have been slow for all banks, including for us. So, I think it will require some time for the recoveries to pick up. And in the near term, while we would work on resolving some of these assets by kind of working on either sale or assets, change in management and other approaches, but on the accounts classified as NPA, currently the progress on recoveries is on the slower side and I think in the next couple of quarters that kind of trend could still continue on the accounts classified as NPAs.

And sir, these accounts, would they be largely from mid corporate kind of a exposure, the SME kind of exposure, some color on that, or [large account]?

In terms of exposure, clearly these are much less in size compared to, for example, what we have talked about in the drill-down list. It is very difficult to say, because each -- definition of everyone on mid-corporate or small, or large, it can be different. But in terms of the exposure size, these are generally smaller than -- you can say these will be the mid-sized or smaller sized exposures compared to the larger corporate exposure that we have. But having said that, in terms of the possible additions in future, which could be there from outside of drill-down, or restructure, or existing NPA list, there could also be some additions, which could be on the lumpier side, because these are -- end of the day are all corporate exposures which are there.

Kannan, just one data point question. I missed out the slippages from retail during the quarter, please repeat it?

About INR6.5 billion.

Kaitav Shah, SBICAP Securities.

Sir, this is more to do with resolution. So the pace is clearly not probably as fast as we would have estimated at the start of the year. So what is that this system can do? What should we watch out for that could make resolutions faster?

I thought actually on resolutions in this quarter, you're seeing some very encouraging progress. So I would just say that the system as a whole, of course, is getting geared up for resolution. In terms of how the ecosystem is moving, you are seeing promoters now willing to sell, either they are not just as stressed assets but also their better assets. You've seen that RBI has given more and more tools in terms of SDR S4A. They've said that they will give some more changes in the S4A guidelines. You've seen that banks are really actually very focused and working with the promoters on arriving at resolutions. And you've also seen that on the legal and other judiciary side, there is a focus at least on the bankruptcy act, on making the arbitration process tighter, on capacitizing the DRTs, the DRATs and so on. So I think ecosystem wise, actually it's moving in the right direction. My feel, in fact, is that it's very important now for the banks to focus on resolution and for all us to focus on resolution. And these do take time, especially some of the larger deals do take time. So, sometimes to the outside world it's not visible that progress is being made, but we believe that a lot of progress is being made, albeit it takes hard work, it takes lot of entities to work together and it sometimes takes time as well.

And just one small bookkeeping question. What would be the interest income reversals during the quarter.?

We have not given that number separately.

Manish Karwa, Deutsche Bank.

I guess I had one question on floating provisions, so like what's the thought of making a floating provision when we are likely to see more slippages happening as you were saying for the next two, three quarters? Wouldn't -- it would have been better to make a contingent provision, because floating provisions you cannot write it back, or is it just that you had a one-off big gain and you're using it to build up floating provisions?

Floating provision is something that RBI allows banks to make on a prudent basis. So that is something which we considered would kind of improve the coverage ratio also for us on the NPAs. And that would have been one of the key considerations while making the floating provision. Of course, over the next couple of quarters, the NPA additions or trade cost could be elevated, but that is something which we will have to kind of see in terms of our profitability itself. So the floating provision, the thinking would have been more linked to the coverage ratio improvement on the NPAs in the current quarter.

And just one or two things. On all your FDRs and 5/25 are actually a part of watch list, is that's right? Or it's an NPA already?

So it would not be all. I would say it would be predominantly all of it, but there would be one or two cases here or there of smaller size which would not be -- already be NPA or restructured, or part of select sector.

And lastly on your tax rate, the tax rate is low. Is it because of the gains that you've made from the IPru issuance -- all IPru sale, and is it that the tax rate on that is zero, or you have long-term capital gains tax there?

No, since it is a sale through IPO the tax is zero. Only the security transaction tax is applicable on that, no capital gains tax applicable.

So the low tax rate for this quarter is only for this quarter and probably next quarter onwards, you revert back to normal taxation -- tax rates actually?

The tax actually is (multiple speakers).

Is an estimate for the full year, the tax rate, the effective tax rate for the first half is based on the estimate that we would have for the full year. So for the full year, this is the best estimate of tax rate, which is there. Of course, things can change between now and the next couple of quarters and tax rate could go up or down a bit from where we are in the first half, but in general that is the best estimate for the full year.

So you are saying that the 1H tax rate would be -- as of now you're expecting full year tax rate to be similar what you have seen 1H tax rate?

Yes, that's correct.

Dhaval Gada, Sundaram Mutual Fund.

Over the last three, four quarters we've been seeing retail loan growth gradually trending to 20%, 21% kind of level. Just wanted to check if this is the new normal growth rate for retail segment given the base now we've reached?

Currently, we thing that given the overall credit growth and the economy, I think 20%, 21% is a very robust growth and we expect that this kind of growth will really continue. And we have said that within that, some of the credit card and those kind of personal loans, because of the lower base, they show up as a higher number. So broadly around this level is something which we can expect to continue.

Secondly on margins, I mean if you ex the IT refund benefit, it's a multi-quarter low. Just wanted to check, yes, there would be a part of interest income reversal, but broadly how do you see margins trending for us second half and beyond second half of this year? Just wanted to get some sense on that.

I think there will be some pressure on the margin that will come on, because of the yield on advances getting impacted by non-accruals and there would be some offset which would come with the funding cost improving and some benefit of free float with the cash that we have got from the sale of stake in ICICI Life Company. So the kind of sharp drop quarter-on-quarter that we saw for example in Q1 over Q4 that should not be there going forward, but it will definitely be a function of the NPA additions and non-accrual. So we'll have to see that.

And sir on this significant reduction in watch list over ensuing quarters, just wanted to understand, apart from the large cement and oil and gas deals which are in the public domain, is there anything else which gives you that confidence that we'll see even more reduction, apart from these transactions? Just wanted to get a sense of how big this could be and just qualitative comment is useful. Thanks.

We are working on some others as well, but, of course these two are in the public domain. So these two itself will -- those by themselves lead to significant reduction. And as and when more happen, then there will be more reduction. But always we've desisted from -- we've never said that this is the amount that is being worked on and so on and so forth, because we've always said that these deals take time. So we just count them as and when they are done. So even for September 30, while the deals were announced and actually even if we have received some more money in October, up to September 30, we've counted only what we've received as on September 30.

And the statement that the significant -- the statement you have made that significantly it will come down is based on the two transactions we have talked about.

Sir, just one last data-keeping question. I just missed the stock of 5/25 SDR and S4A, if you could repeat? Thanks.

Stock of 5/25 is about INR27 billion of performing loan. SDR is about INR29 billion, and S4A, there is nothing which has so far been implemented as of September 30.

Seshadri Sen, JP Morgan.

My first question is on provisions. So if you see your breakup of NPAs into substandard and doubtful, your doubtful book has actually contracted and your substandard book in rupee terms has expanded over the quarter. Yet your provisions as a percentage of incremental slippages or incremental gross NPAs is quite high, excluding the special provision, if you just take the ongoing INR35-odd billion provision that you've made. I'm just trying to understand it, has there been a significant aging provision that's there, because the bucket movement doesn't seem to indicate it? How has that panned out, if you could throw some color?

Seshadri, there are lot of moving parts in terms of the provision requirement computation on the NPAs. So one of course is the bucket in which the NPA is substandard/doubtful and then if loans shift from substandard to doubtful, the level of security value which is there, that is also something which becomes a factor. And then depending on some of the restructured loans slipping into NPA, they are also, depending on when the loan was restructured, there would be some impact of that also. So that is the reason why, overall, it is always difficult, frankly, to estimate out the provision cost, based on just the substandard/doubtful breakup which is there.

Appreciate that. The question I was asking this, this time, because the slippage from restructured is fairly low and then the bucket movement. But, broader question is you stuck strictly to IRAC norms when provisioning. You've not accelerated provisioning within the IRAC on a prudential basis within an asset when you take [in extra provisioning], there is nothing like that, it's strictly IRAC norms, and the bucket market movements have warranted INR34 billion. Am I reading it right?

Yes, so what the provision that we make for NPAs, they broadly follow the IRAC norms. Of course, for some of the retail loans, as we have said in past, the provisioning policy, somewhat more conservative than RBI -- RBI guidelines. And then on the corporate loan side, it largely it follows the RBI requirement which is there.

And the second question is, the use of the special provisions, someone else asked that also, but specifically, just to clarify, the floating provision with RBI permission you can utilize it in the future, but you need specific RBI permission. And the general provision that you've created, as and when, if those assets slip into NPAs, you will draw those down at that time. Have I got that right?

Yes. So, the additional provision for standard loans, as I said, includes provisions that we would have done to make to reach 15% provision on the loans, where SDR has been implemented or has been invoked. So that anyway is a requirement which is there from RBI. RBI, basically says to avoid the cliff effect of possibly an SDR loan slipping into NPA after 18 month standstill period. They provide banks a time period of that 18 months or four quarters from the implementation to make that 15% provision. And the rational for that provision indeed is that if such an account would slip into NPA that can be drawn down at that stage.

And the floating provision utilization has to be with the explicit approval of RBI.

Nilanjan Karfa, Jefferies.

If I look at the underlying bottom line for the Bank, given how the QoQ rate -- QoQ growth has been, I mean we could have easily taken another INR1,000 crore more into provisions. Just wanted to get some thoughts why did we not do so?

In terms of -- it is very difficult to kind of discuss that. So we can tell you the rational for the provisions that we have made, which we kind of explain that we have made provisions for the NPAs based on what broadly our policies are in line with RBI. And then we have made these additional provisions during the quarter. So there can always be a debate on the additional provision that one can make somewhat higher or lower, but we would have -- on the floating provision, for example, RBI does give leeway to banks to create that on a prudent basis and the level that banks can create can be varying. So that is what we have determined that we would want to make in the current quarter.

And part of this question, have we started guiding on the credit costs?

No, we had said at the beginning of the year that our NPA additions and credit cost in the current year, given the significant uncertainty around some of the resolutions and recoveries and the overall environment, we would rather focus on the resolution and not kind of talk about specific numbers on credit cost and NPA additions. So that is something which for the current year we are not giving any guidance on.

And again part of this -- third part is the tax rate. I think there was a question, but this was significantly lower because of maybe dividends, as well as the sale of these subsidiaries which was probably taxed at what? Less than 20%. And I think you guided for a similar kind of run rate. So does that mean we are expecting more such deals to go through for the Bank?

No, we said two things. One is, in the Life Company, we said there is zero capital gains tax, because the sale was done through an IPO and security transaction tax was applicable, which is a smaller amount. So that reduced the tax incidence. And we also said that in computing the tax for a particular quarter, we always do the projection for the full year, and based on our current estimates and then we take a likely percentage. So what we mentioned was that if you look at the H1 tax rate, same thing can be assumed as of now to be there on the full year as well, unless some composition of income and the level of profit and various things change going forward. So those are the two statements we had made on the tax front.

Part B of my question, so this number, the 5/25, which is INR27 billion, that's assumed to be a standard asset, right?

That is the performing portfolio, yes.

And barring a few -- INR1 billion or INR2 billion here, this is probably included in the watch list?

It will be part of the drill-down, yes.

And what do we say about the SDR, which is INR29 billion, is it also standard?

That would be a mix of NPAs, restructured assets and standard loans, which would largely be in the drill-down list.

So sorry, can I get just standard SDR non-restructured?

I think we have given that number. And as I said, it would be substantially in one of these three categories.

And the last question, when we look at the standard asset provision, or the general provision, could we get a sense, how much is to the performing assets, how much is towards the SDR, UFCE and restructured assets, is it possible to get a breakdown of that?

You are talking of the INR16.78 billion?

No, the [25.] -- was it [25]? Yeah, INR25.65 billion GP, general provision?

Yeah, so we have not even given that breakup, but it'll largely be -- of course, the UFCE number and all have not really moved much during the half year. So bulk of this provision would be for the movement in the portfolio and the increase in the percentage on that basis. And, of course, we also make this provision on the basis of -- higher of the provision requirement as per the RBI guidelines for the requirement in the overseas branches, but this is all for -- largely for the standard loans, which is there.

So can I assume, let's say, if I exclude the NPA portion from the SDR, then we are carrying 15% on SDR and 15% on the restructured assets, which is part of this INR25.65 billion?

So if you include the additional provisions that we have made during the quarter, and as I said, that a large part of that is towards meeting the 15% requirement on SDR loans that RBI has, so for the loans in which the SDR has been invoked and has been implemented by the Bank, or is in the process of being implemented by the Bank. On those loans, we have made that 15% provision which RBI would otherwise give time to create.

So we don't need to make catch-up, at least on the assets which are already -- the process has been --?

Yes.

Sorry and last question, if I look at that note 7 and note 8, I'm not able to reconcile the [INR395.41 billion], which is the provision that we make.

Yes, there are actually a few moving -- few things which have to be considered there. So net-net, the [INR3.95 billion], which is there is the difference between, if we had amortized the loss on the deals that we have done in the June and September quarter, versus having taken it upfront. So that is the [INR3.95 billion], which is there as a part of the additional provisions. The other detail note talks about the fact that in the first quarter we had actually amortized the loss. So the deferred cost of that came -- the deferred loss on that we took entirely in the September quarter. And then the September quarter sales were also there, where we anyway took the loss upfront. And, of course, in this case, the gains have to be kind of -- unless they are in cash, have to be ignored and kept aside. So those numbers are also given in that footnote. So I would just say that if you look at the INR3.95 billion that means that the entire loss on sale that we have done in the first half of the year that has been recognized in the P&L and there is no loss which is pending to be recognized. In fact, if there are some gains which are there, they anyway have to be kept aside and which have been kept aside, other than for which we would have received money in cash, which would be a smaller amount.

So basically, what you're saying is this INR188.38 crore of gain is not netted out of INR3.95 billion? You've made a total gain of INR188.38 crore in the six months?

Yes, so that has to be set aside towards the SRs received on such sale and that has to be done, so that cannot be taken out.

So you are still carrying that gain in the balance sheet?

Yes, (multiple speakers) that is still carried.

MB Mahesh, Kotak Securities.

Just a couple of clarifications. One, this entire deal that you had with TATAs, the deal which had with Apollo and SBI's fund that they've launched with Brookfield, when is the earliest that we could see any action coming through from that area? Also, construction sector had seen some repayments relief from the government. Have you started seeing anything coming through that? As well as S4A, when should we start hearing on this with a little bit more traction than what we've seen so far?

Yes, on the first question on our Apollo proposal joint venture for asset re-construction, we are in the process of doing the regulatory approvals and as and when the regulatory approvals come in, the asset re-construction company will be established. So that is a work in progress. We are talking to the regulators to get the approvals. That is on the first question. The second question, I think you had asked on --

Construction sector.

Construction sector, yes the government has given that approval to release those dues which have been settled in favor of the company in the first level of arbitration, provided a bank guarantee is given. But at the same time, a few of the government owned enterprises, we understand, have been looking at changing their policies. So while it's a big positive, but the implementation will take some time.

On your third question on S4A, the RBI had talked about some changes to the S4A guidelines which was expected and likely to be positive at the margin. But as you would have seen the media report, already the whole OC process and S4A, the process stipulated by RBI is well under way and as media reports would suggest, large case has been approved under S4A. So I think that you will see some progress going forward on the S4A. So those are the answers for the three questions.

Second part is on the reduction. You've indicated slippages would be high --will continue to remain high. Does that mean that a large part of the watch list where the resolutions are still in the process could still potentially move into an NPA before you see a resolution, or in general you're seeing some pain coming through the portfolio? Second is, if you see a reduction and if an exposure moves from company A to company B, does the existing investment grade hold in the portfolio or do you get a new investment rating out there?

So on the second one, the rating will be of the new company that is if that was the question Mahesh.

On transfer, the rating will be of the new company. As we've been saying that some of the deals are being announced moving, but not yet closed or completed. So, as of now they appear at the same rating, but once the deal is completed and the loan is transferred, it will get the new rating.

And the slippages from watch list, or the elevated slippages that you have indicated for the next few quarters, does it reflect temporary slippages out there or is it something that we need to watch into it?

I think the statement that we have made is the same that we made at the beginning of the year and in the last quarter that the exposures which are there in the drill-down list are lumpy exposures and so it is possible that some of them could slip into NPAs, or payment default, kind of becomes more than 90 days, or in some cases if you are working on the resolution, it is possible that in the interim also an account could slip into NPL. So it's not that we have any specific list of cases that we are certain would slip into NPA in the next quarter or the quarter thereafter. It is just that given the current overall environment which is there and the portfolio which is there, we have talked about the amount of additions being elevated in the next couple of quarters. There is nothing specific that we have in mind in terms of whether there will be an interim slippage or a permanent slippage as part of that.

My last question, can we have the below investment grade portfolio for the entire book, the consolidated one, or directionally if you could highlight how they change from the March quarter?

We have not given that numbers separately, but I think if we look at on an overall basis, I don't think there have been -- if you look at any of the data around, there have been too many downgrades which have happened from March onwards in general. And in our portfolio also, the level of downgrades may not have been much. We have not given any specific numbers on that.

Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand over the floor to Miss. Chanda Kochhar for her closing comments. Over to you, ma'am.

Well, I think, to close, I would just sum up by saying that we are moving quite well on our four-by-four agenda and the progress that we've made on resolution and recovery, which will actually start showing its impact, even as we go forward the value that we have unlocked from the IPO. But these are the two things that have happened and will continue to happen going forward, especially the resolution. But also in addition to that we have really grown our funding profile and continue to maintain the strong franchise around our funding profile. If you look at our growth, our growth has been quite substantial and quite healthy.

As we said, retail has grown by 21%, but even on the corporate side, we have actually, on the one hand, reduced exposure in certain categories, but on the other hand, increased exposure than better rated clients. So if we just look at the non-NPA, non-drilldown list, non-restructured portfolio et cetera, on that base, the growth in the corporate side is also almost around 20%, but net-net it shows a growth of about, 8%, 8.5%. And we have taken this quarter to actually further strengthen our balance sheet. So on this basis, given our capital adequacy ratio, our funding profile and our strong balance sheet, we are quite focused on growth, at the same time quite focused on achieving resolution.

Thank you very much ma'am. Thank you. Ladies and gentlemen, on behalf of ICICI Bank that concludes this conference call. Thank you for joining us. And you may now disconnect your lines.